Critics: Gov.'s car tax cut a clunker

Bill Cummings

Published 11:57 pm, Wednesday, February 6, 2013

HARTFORD -- Gov. Dannel P. Malloy's plan to eliminate automobile taxes for most residents and extend a controversial energy tax offers a short term benefit and a potentially long term burden.

During his annual budget address Wednesday, Malloy called for wiping out car taxes for an estimated 90 percent of state residents and extending a surcharge on electrical generating plants set to expire this year.

It took critics only minutes to point out that eliminating most car taxes, while saving drivers money, would also wipe out most of the $560 million in taxes towns and cities now collect and that extending the energy tax could cause electric rates to rise significantly.

"You are not going to get tax relief if you push the costs to towns and cities," said Danbury Mayor Mark Boughton, referring to eliminating car taxes.

"It will result in tax increases," said Boughton, adding Danbury could lose up to $10 million in annual revenue.

The owners of the Millstone nuclear power plant said the $42 million collected annually through the energy tax will be passed on to ratepayers.

The tax was slapped on Millstone and electric plants in Bridgeport and Stamford two years ago as a temporary measure to help cover a $3.7 billion state deficit.

"Two years ago, the governor promised the tax would expire. He broke that promise today and we are disappointed," said Kevin Hennessy, a spokesman for Dominion, Millstone's owner.

"Dominion said we would absorb it and not pass it on. Dominion is no longer held to that promise. We will do our best not to pay this," Hennessy said.

Others called extending the energy tax a "tax increase" and accused the governor of breaking a promise.

Malloy has said he would not raise taxes in his new two-year budget and declared during his address that "My proposed budget does not include any new taxes."

"It's a tax increase," said Senate Minority Leader John McKinney, R-Fairfield. "We should not be raising taxes."

Malloy proposed extending the energy tax, along with a levy on corporations making more than $100 million a year and a credit limitation on the insurance premium tax, to retain much needed revenue.

The three levies, which are set to expire this year, bring in about $161 million a year.

The governor's automobile tax proposal would eliminate taxes on vehicles valued at less than $28,500. Malloy called the tax "especially unfair" because car taxes are based on local mill rates, which vary from town to town.

"This is tax relief for families who are middle class, working class and working poor," Malloy said.

The governor also told lawmakers he proposed no reductions in municipal aid, saying, "We hold municipalities harmless in our budget."

But municipal leaders said Malloy's proposed budget moves some traditional municipal aid, like Indian gaming money and payments in lieu of taxes, to the Education Cost Sharing formula, the system used to distribute education funds.

That could set up battles with school boards over whether the school or town side of government received the money, those leaders said.

"We are nervous, however, about how shifting funds from certain municipal grants to others will affect various local programs," Smith said.

Bridgeport Mayor Bill Finch said Malloy's car tax proposal would cost his city up to $17 million a year. He said Malloy's budget also means Bridgeport would lose $7 million in Indian gaming revenue and $2.8 million in payments in lieu of taxes.

"If these cuts are implemented in full, there would be disastrous consequences for our residents and potentially one of the largest local tax increases ever as the state tax burden shifts to our residents," Finch said.

McKinney, the Senate minority leader, said he supports eliminating car taxes. "I've always thought this is the way we should go."

Senate President Donald Williams also supported eliminating most car taxes, although he acknowledged it may not be easy to accomplish. "I think it's a great idea. It can be significant for folks. We want to see if that can be done given our fiscal restraints."

James Finley, director of the Connecticut Conference of Municipalities, said his members are very concerned about the car tax proposal.

"It's a revenue loss that will have to be made up somehow. They can either cut services, raise taxes, or both," Finley said.